Causes of the Great Depression

1
Causes of the Great Depression

• No, it is not just the crash

2
Causes of the Depression

• Overproduction of durable goods

3
Causes of the Depression

• Wages did not keep pace with inflation or
  production
• Uneven distribution of resources (Top 5 of
  population earned over 1/3 income)
• Bottom 60 of Americans earned only 26 of the
  income
• Top 0.5 controlled 1/3 of the nations wealth

4
Causes of the Depression

• Weak agricultural economy
• High and increasing supply in 20s
• Stable demand
• Low prices
• Remember the plight of the farmer and Populism

5
Causes of the Depression

• Increased (excessive) purchases on credit
• Speculation in land and/or stock market
• Remember difference between speculation and
  investment
• Remember there is no true regulation of the stock
  market
• Buying on margin

6
Causes of the Depression

• Global Economy
• European Debts
• Dawes Plan?
• Prohibitively high tariffs on both sides of the
  Atlantic
• Increased dislocation of international trade

7
Causes of the Depression

• The Crash
• Black Thursday (October 24, 1929)
• Black Tuesday (October 29, 1929)
• 40 billion in stock value lost
• Only 4 million of 120 million population owned
  stock
• Bull Market peaks in September
• Much of October showed instability and a general
  downward trend

8
Andrew Mellon on the Crash

• It will purge the rottenness out of the system.
  High costs of living and high living will come
  down. People will work harder, live a more moral
  life. Values will be adjusted, and enterprising
  people will pick up the wrecks from less
  competent people.

9
Causes of the Depression

• Run on the banks
• Margin calls
• Hawley-Smoot Tariff? (A contributing factor?)

10
Causes of the Depression

• Weaknesses of the banking system
• Saturation of Market gtDemand Decreasedgt
• Slower Production gt Cutbacks/Layoffs
• MASSIVE UNEMPLOYMENT
• 25 unemployment rate in 1933

11
1932 Perspective

• a rancher said that he had killed 3,000 sheep
  this fall and thrown them down the canyon,
  because it cost 1.10 to ship a sheep and then he
  would get less than a dollar for it. He said he
  could not afford to feed the sheep, and he would
  not let them starve, so he just cut their throats
  and threw them down the canyon.
• Oscar Ameringer, Newspaper Editor

12
1932 Perspective

• The farmers are being pauperized by the poverty
  in industrial populations, and the industrial
  populations are being pauperized by the poverty
  of the farms. Neither has the money to buy the
  product of the other, hence we have
  overproduction and under consumption at the same
  time and in the same country.